When a payee does not furnish a valid PAN, Section 206AA requires the deductor to deduct TDS at the higher of: (a) the rate specified in the Act, (b) the rate in force, or (c) 20%. In practice this means a minimum of 20% TDS on almost every payment — salary, interest, dividend, rent, contractor and professional fees. An inoperative PAN (not linked to Aadhaar) is treated as no PAN, so 206AA applies. Form 15G/15H cannot be filed without a PAN.
Normal Rate vs 206AA Rate — Section-Wise
Normal TDS rates for FY 2025-26 against the Section 206AA rate that applies when the payee gives no PAN. Verify live rates on our TDS rate chart 2025-26.
| Section | Payment | Normal Rate | 206AA Rate (no PAN) |
|---|---|---|---|
| 192 | Salary | Slab rate | Min 20%* |
| 194A | Bank / other interest | 10% | 20% |
| 194 | Dividend (company) | 10% | 20% |
| 194K | Mutual-fund income | 10% | 20% |
| 194C | Contractor — individual/HUF | 1% | 20% |
| 194C | Contractor — other | 2% | 20% |
| 194H | Commission / brokerage | 2% | 20% |
| 194I | Rent — land / building | 10% | 20% |
| 194I | Rent — plant / machinery | 2% | 20% |
| 194J | Professional fees | 10% | 20% |
| 194J | Technical services | 2% | 20% |
| 194-IA | Property purchase (buyer) | 1% | 20% |
| 195 | Non-resident (no DTAA docs) | As per Act/DTAA | 20% min |
*Section 206AA for salary: TDS at the higher of the average slab rate or 20% (Circular position). 194H reduced to 2% from 1 Oct 2024. Rate in force may include surcharge/cess for non-residents.
Section 206AA — Key Rules
| Scenario | Position | TDS Treatment |
|---|---|---|
| PAN furnished, active & Aadhaar-linked | Normal | Normal rate |
| PAN not furnished | 206AA | Higher of rate or 20% |
| PAN inoperative (Aadhaar not linked) | 206AA | Higher of rate or 20% |
| Form 15G / 15H filed without PAN | Invalid — 206AA overrides | 20% still applies |
| Lower-TDS certificate u/s 197 | Applied after PAN check | Specified lower rate |
| Wrong / invalid PAN quoted | Treated as no PAN | 20% applies |
Since 1 July 2023, TDS on payments to a person with an inoperative PAN must be deducted at the higher 206AA rate, as if no PAN was furnished.
A PAN not linked to Aadhaar is "inoperative" and is treated as no PAN — banks and companies must then deduct 20% TDS. Link PAN with Aadhaar at incometax.gov.in to keep your PAN active and stop higher deductions.
Had 20% TDS deducted on your interest, dividend or fees? Get it reviewed and recovered.
Talk to a Tax Expert →Relief for Non-Residents Without PAN
Under Section 206AA(7) read with Rule 37BC, a non-resident earning certain income (interest, royalty, fees for technical services, transfer of capital assets) need not quote an Indian PAN if they furnish the prescribed documents — TDS is then at the normal Section 195/DTAA rate, not 20%.
- Name, email, address and country of residence
- Tax Residency Certificate (TRC) from the home country
- Form 10F self-declaration
- Foreign Tax Identification Number (TIN)
Without these, Section 206AA applies to the non-resident and TDS is at 20% (or twice the normal rate, whichever is higher). See our NRI taxation guide for DTAA rates.
Worked Example — Excess TDS & Refund
Interest of ₹1,00,000 — no PAN
After PAN filed in ITR
The excess 206AA TDS is fully recoverable: file your income tax return, declare the income, claim the TDS credit shown in Form 26AS, and the difference is refunded to your pre-validated bank account.
An Aadhaar-based e-PAN is usually issued within 2-3 working days via the Protean (NSDL) or UTIITSL portals. Provide it to the deductor before payment so TDS reverts to the normal rate — you avoid blocking cash and a later refund wait.
Frequently Asked Questions
Related TaxClue services
20% TDS Without PAN — Recover It or Avoid It
Whether TDS was over-deducted for want of PAN or you deduct TDS and want to stay clear of 206AA demands, TaxClue's CA-led team handles PAN issues, DTAA documentation, refunds and TDS returns — 100% online, across India.